Miller v. Lear Siegler, Inc., Civ. A. No. 76-255-C6.

• Decision Date: 24 July 1981
• Docket Number: Civ. A. No. 76-255-C6.
• Citation: 525 F. Supp. 46
• Parties: Kenneth E. MILLER, Plaintiff, v. LEAR SIEGLER, INC., a corporation, Defendant.
• Court: U.S. District Court — District of Kansas

525 F. Supp. 46

Kenneth E. MILLER, Plaintiff, v. LEAR SIEGLER, INC., a corporation, Defendant.

Civ. A. No. 76-255-C6.

United States District Court, D. Kansas.

July 24, 1981.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Alexander B. Mitchell of Sargent, Klenda & Glickman, Wichita, Kan., for plaintiff.

Robert C. Foulston of Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., for defendant.

DECISION OF THE COURT

THEIS, District Judge.

This is a libel action brought by the plaintiff, Kenneth E. Miller, against his former employer, Lear Siegler, Inc. Plaintiff contends that certain statements made by defendant in reports to shareholders, and in press releases to financial publications, were libelous of plaintiff; that such libel damaged plaintiff; that defendant published the statements with knowledge of their falsity or with reckless disregard for the truth; and that plaintiff is further entitled to punitive damages.

Defendant admits publishing the press releases in question, but denies that they are libelous. Defendant contends that the releases were true. Defendant also contends that it was acting under either an absolute or qualified privilege based upon the reporting requirements of the securities laws and defendant's duty to its shareholders. Defendant contends that its actions in regard to plaintiff were without malice; that any damages plaintiff may have suffered were not of the nature or extent alleged; that plaintiff failed to mitigate his alleged damages; and that plaintiff is not entitled to claim or recover punitive damages.

Trial of this action was to the Court. The Court's decision consists of findings of fact from the evidence, principles of law applicable to decision in this case, and an opinion discussing conclusions of law applicable from the findings of fact.

FINDINGS OF FACT

Events Leading to Meeting of October 29, 1975

1. Plaintiff was an employee of defendant from 1953 through August 20, 1975. From 1968 until 1975, plaintiff was President and General Manager of the defendant's Management Services Division (MSD) in Oklahoma City, Oklahoma.

2. Defendant is a large diversified corporation. As of June 30, 1979, it had forty-nine divisions and subdivisions operating in

twenty-three states and eight foreign countries. For the year ending June 30, 1979, it had net sales of approximately 1.327 billion dollars and had approximately 125 million dollars in earnings before taxes.

3. The events which led to this lawsuit were precipitated by a letter of resignation dated July 21, 1975, from a MSD staff accountant, Lew Massuere, to Homer J. Roush, his immediate superior. In this letter (Pl.Ex. 1), Massuere wrote that he had overstated MSD unbilled receivables by about $500,000 as a result of a failure by Massuere to reverse an accrual entry. In the letter, Massuere stated that he was totally to blame, and stated that he had delayed divulging the irregularities because of the financial problems MSD had undergone during the last fiscal year.

4. Mr. Roush informed plaintiff of the letter and, after a brief investigation, plaintiff telephoned his superior, Larry Thompson, who was stationed at corporate headquarters in California. This triggered an investigation by defendant into the accounting situation at MSD.

5. The investigation was conducted by the MSD staff and by other corporate employees, including auditors from a recently formed internal auditing department. By letter of August 19, 1975, defendant notified its outside auditor, Alexander Grant & Co. (AG&Co.), of the MSD problems.

6. On August 20, 1975, Larry Thompson requested the plaintiff's resignation, and told plaintiff he would be placed on a month-to-month salary severance agreement until the extent of the MSD accounting problem was known. The decision to fire plaintiff was made at the highest corporate level, with the approval of defendant's President and Chairman of the Board, Robert Campion, who took an active part in the decision to replace plaintiff. Defendant's officers involved in the decision to fire plaintiff all testified that the firing was not due to the accounting problems in and of themselves, but due to a growing dissatisfaction with plaintiff's performance. The Court finds that by weight of the evidence, the accounting problems were the major, if not the only, cause for plaintiff's dismissal.

7. The investigation continued into the fall of 1975. For a brief period Massuere was rehired to help unravel the accounting problem he had admitted to creating. He soon left again, leaving a note saying he had created the "credibility gap." (Pl.Ex. 2.) The estimated amount of overstated earnings continued to grow as the investigation proceeded.

8. While the investigation was proceeding, defendant was finalizing a decision to change outside auditors. On September 15, 1975, Campion wrote to William Mette, Senior Partner of AG&Co., to inform him that defendant was replacing it with Price Waterhouse & Co. Defendant's officers all testified that the decision to change auditors was totally unrelated to the accounting problems at MSD. The Court finds, however, that the fortuitous discovery by defendant of large accounting irregularities which the outside auditor had failed to discover must have contributed to or reinforced the decision to change outside auditors, and was likewise an additional effort of the principal corporate officers to absolve themselves of culpability for the auditing problems of the defendant corporation.

9. On October 17, 1975, defendant issued its press release (Def.Ex. II) for the first quarter of 1976. The release reflected the fact that defendant and its new outside auditor, Price Waterhouse, approached the MSD problem by writing off the unsupportable receivables without discussing the nature of the problems necessitating the write-off.

10. On October 22, 1975, a meeting was held between defendant's representatives and representatives from A.G.&Co. Representing defendant were Campion, David Louks (Vice President and Controller for defendant corporation), and Barton Beek (Outside General Counsel and member of the Board of defendant corporation). Representing A.G. & Co. were William Mette, Ted Thompson and an outside attorney. A representative from Price Waterhouse was present for the latter part of the meeting.

11. At this meeting, A.G. & Co. took the position that the October 17, 1975, disclosure statement was inadequate because the overstatement of earnings at MSD was material, based both on the amount involved and the fact that deliberate false entries were involved. A.G. & Co. said that without additional disclosure it would be forced to withdraw certification of defendant's financial statement.

12. The defendant representatives contended that the overstatements were not material and that no restatement of earnings was required.

13. The disclosure argument was not resolved at the October 22nd meeting. At the request of A.G. & Co., another meeting was scheduled for October 29, 1975.

The Meeting of October 29, 1975

14. The October 29, 1975, meeting between representatives of defendant and A.G. & Co. was held in Chicago, with Campion, Louis and Beek representing defendant, and Mette and seven others representing A.G. & Co.

15. At this meeting the debate over whether disclosure was required was renewed with great vigor. A.G. & Co. continued to insist that unless defendant restated earnings for the fiscal years ending in 1973, 1974 and 1975, A.G. & Co. would withdraw its clean audit opinion for defendant for the years 1974 and 1975. Such a restatement of earnings would require additional disclosure statements.

16. While the defendant representatives continued to argue that the accounting problems were not material and that restatement was not required, they finally concluded that defendant had no choice but to restate earnings.

17. Withdrawal by A.G. & Co. of the clean audit letters would have meant that defendant would not be able to meet Securities and Exchange Commission (SEC) filing requirements, which in turn would have caused suspension of all trading of defendant's stock. This would have caused great economic hardship to the corporation and its shareholders.

18. Defendant had an honest and reasonable belief that it was required to restate its earnings and to also make attendant disclosure statements as required by the SEC and by the New York Stock Exchange (NYSE), and also as required by a duty to its stockholders.

19. Once defendant agreed to restate its earnings, Beek drafted a press release. This press release underwent several redraftings as the A.G. & Co. and defendant representatives discussed the content and form of the release. The final draft of the release was approved by both the defendant and A.G. & Co. representatives.

20. After the final draft of the release was approved, the defendant representatives flew to New York City to meet with New York Stock Exchange personnel and to place the press release on its wire services. A copy of the press release is attached hereto as Appendix "A". The contents of the press release were incorporated, in varying degrees, into stories in several major publications, including the Wall Street Journal and the Los Angeles Times.

The Press Release

21. The press release, on its face, would render in the mind of the average lay reader a conclusion, impression or opinion that the plaintiff was implicated in, connected with, or responsible for the accounting irregularities in the MSD, and that fraud may have been involved in such irregularities.

22. This conclusion is defamatory and tends to expose plaintiff to public contempt and obloquy, deprive him of public confidence, and injure him in his profession.

23. The defamatory implications are false.

24. Although plaintiff's name did not appear in the release, the language was such that persons reading it would, in the light of surrounding circumstances, be able to understand that...